Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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FX Breakout Monitor: JPY thrives post-FOMC
John J. Hardy
Chief Macro Strategist
Summary: JPY, NZD, MXN, and gold in focus post-FOMC.
For a PDF copy of this edition, click here.
The December 19 Federal Open Market Committee meeting has prompted considerable volatility and a number of interesting potential breakouts, although this time of year is often a difficult one for trend traders.
We present today’s breakout monitor with some trepidation as the USD situation is very volatile and could certainly change again by the end of the day or week as we go into the period of traditional very thin liquidity at the tail end of the year.
That being said, the most consistent price action in USD pairs in the period since the FOMC meeting has been USDJPY, which is attempting both a 19-day and 49-day breakout here (more in chart below). The EURUSD is also attempting a look higher, but the price action has been less consistent there intraday. Elsewhere, the recent break in EURCAD we highlighted recently is showing further progress.
Another new signal that looks compelling is spot gold, which has zipped above the 200-day moving average and the $1,250/oz resistance level.
Today’s FX Breakout monitor
Page 1: EURUSD is attempting a break higher, but seems clearly affected intraday by risk appetite swings; it would be more helpful to see stable risk appetite for a solid break higher. Note the chart discussion below. The USDCHF attempted break lower is technically inferior to EURUSD unless EURCHF stops rallying and the pair moves below the 200-day moving average.
Page 2: SEK is attempting to make a statement, but really needs to punch below the 10.19 area lows in EURSEK to deserve more attention in the crosses like USDSEK etc. Given that the FOMC was far less dovish than the market was expecting and risk appetite is generally weak, it is remarkable to note the USDMXN attempt to break lower, as well as a similar attempt in USDTHB.
USDRUB, meanwhile, is looking the opposite way on struggles in the oil market. Note here that NZDUSD attempted a break lower yesterday but eh price action has backed up significantly – more in the chart below. The most interesting of today’s signals is possibly XAUUSD, or spot gold, which we discuss below.
USDRUB, meanwhile, is looking the opposite way on struggles in the oil market. Note here that NZDUSD attempted a break lower yesterday but eh price action has backed up significantly – more in the chart below. The most interesting of today’s signals is possibly XAUUSD, or spot gold, which we discuss below.
Chart: USDJPY
This is the day’s most compelling signal technically as the local range has been taken out on high momentum. The 110 area looks more important than the 200-day moving average that is now suddenly swinging into view.
This is the day’s most compelling signal technically as the local range has been taken out on high momentum. The 110 area looks more important than the 200-day moving average that is now suddenly swinging into view.
Chart: EURUSD
EURUSD looks bullish after the long period of consolidation in a tight range if it can manage a solid break higher here that clears it of the recent range. The current price as of this writing below 1.1450 is less compelling than if the pair is able to clear 1.1500 on a closing basis into the first real trading days of the New Year. Stay tuned – we can’t imagine the pair stays bottled up in the tight range of late either way.
EURUSD looks bullish after the long period of consolidation in a tight range if it can manage a solid break higher here that clears it of the recent range. The current price as of this writing below 1.1450 is less compelling than if the pair is able to clear 1.1500 on a closing basis into the first real trading days of the New Year. Stay tuned – we can’t imagine the pair stays bottled up in the tight range of late either way.
Chart: XAUUSD
Spot gold is enjoying a strong surge today and the breaks look solid as it rejects the prior day’s attempted reversal. Look for a break of the channel formation higher to possibly lead to further gains in the days ahead.
Spot gold is enjoying a strong surge today and the breaks look solid as it rejects the prior day’s attempted reversal. Look for a break of the channel formation higher to possibly lead to further gains in the days ahead.
Chart: NZDUSD
Yesterday saw NZDUSD posting a new 19-day low, but this performed poorly today for bears – the pair needs to stay below the 0.6800-50 zone to maintain downside break credibility.
Yesterday saw NZDUSD posting a new 19-day low, but this performed poorly today for bears – the pair needs to stay below the 0.6800-50 zone to maintain downside break credibility.
Chart: USDMXN
USDMXN is having another go at pushing lower despite the weak risk sentiment backdrop – if it can stick the close below 20.00, the move looks valid until proven otherwise (would still prefer a more positive risk sentiment backdrop for a significant move lower).
USDMXN is having another go at pushing lower despite the weak risk sentiment backdrop – if it can stick the close below 20.00, the move looks valid until proven otherwise (would still prefer a more positive risk sentiment backdrop for a significant move lower).
FX Breakout Monitor overview explanations
The following is a left-to-right, column by column explanation of the FX Breakout Monitor table.
Trend: a measure of whether the currency pair is trending up, down or sideways based on an algorithm that looks for persistent directional price action. A currency can register a breakout before it looks like it is trending.
ATR: Average True Range or the average daily trading range. This calculation uses a 50-day exponential moving average. The shading indicates whether, relative to the prior 1,000 trading days, the current ATR is exceptionally large (deep orange), somewhat elevated (lighter orange, normal (no shading), quiet (light blue) or exceptionally quiet (deeper blue).
UP and DOWN Break Levels: These columns show how close, in ATR terms the current price is from breaking the highest and lowest prior 19- and 49-day daily closing levels, with the “breakout level” indicating the actual level of that highest or lowest close. If a breakout is getting close in ATR terms, it is highlighted in yellow or bright yellow (very close). If the current price is trading above or below the breakout levels, in other words, has just broken out, an “X” is shown to indicate this rather than an actual ATR reading.
NEW Breakouts: These are indications of whether, at the time of the snapshot of the market, the currency pair is trading above or below the breakout level. NOTE: it is key that the intention here is to highlight NEW or initial breakouts, as a pair that has been trending consistently and has set multiple (more than two) new highs/lows will not be highlighted. This is done to avoid too much noise on the chart and focus on new information.
Number of breakouts for prior 8 days: This is merely a counter to indicate the number of days in which the pair has posted a new daily 19-day or 49-day high or low close. It will flag currency pairs that have been trending strongly recently but aren’t actively breaking out at the time of the snapshot of the model and/or aren’t highlighted in the NEW Breakouts part of the table.
Recent New 19-day Signals: This gives the reader a chance to see if any recent 19-day breakout signals were registered over the prior three days for perspective on recent developments. The prior day’s signals particularly interesting if waiting for daily closes before deciding whether to trade a breakout on the following day. If there have been more than three prior signals over the past eight days, no signal is shown in order to reduce the “noise” on the overview (though all signals are tallied in the “Number of breakouts…” column to the left.
The following is a left-to-right, column by column explanation of the FX Breakout Monitor table.
Trend: a measure of whether the currency pair is trending up, down or sideways based on an algorithm that looks for persistent directional price action. A currency can register a breakout before it looks like it is trending.
ATR: Average True Range or the average daily trading range. This calculation uses a 50-day exponential moving average. The shading indicates whether, relative to the prior 1,000 trading days, the current ATR is exceptionally large (deep orange), somewhat elevated (lighter orange, normal (no shading), quiet (light blue) or exceptionally quiet (deeper blue).
UP and DOWN Break Levels: These columns show how close, in ATR terms the current price is from breaking the highest and lowest prior 19- and 49-day daily closing levels, with the “breakout level” indicating the actual level of that highest or lowest close. If a breakout is getting close in ATR terms, it is highlighted in yellow or bright yellow (very close). If the current price is trading above or below the breakout levels, in other words, has just broken out, an “X” is shown to indicate this rather than an actual ATR reading.
NEW Breakouts: These are indications of whether, at the time of the snapshot of the market, the currency pair is trading above or below the breakout level. NOTE: it is key that the intention here is to highlight NEW or initial breakouts, as a pair that has been trending consistently and has set multiple (more than two) new highs/lows will not be highlighted. This is done to avoid too much noise on the chart and focus on new information.
Number of breakouts for prior 8 days: This is merely a counter to indicate the number of days in which the pair has posted a new daily 19-day or 49-day high or low close. It will flag currency pairs that have been trending strongly recently but aren’t actively breaking out at the time of the snapshot of the model and/or aren’t highlighted in the NEW Breakouts part of the table.
Recent New 19-day Signals: This gives the reader a chance to see if any recent 19-day breakout signals were registered over the prior three days for perspective on recent developments. The prior day’s signals particularly interesting if waiting for daily closes before deciding whether to trade a breakout on the following day. If there have been more than three prior signals over the past eight days, no signal is shown in order to reduce the “noise” on the overview (though all signals are tallied in the “Number of breakouts…” column to the left.
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